Corn prices driveincrease other prices

By Sarah Vaccarelli, Calkins Media

Monday

Jul 2, 2007 at 12:01 AM

John Pasco filled up his 2005 Dodge Stratus at the Flex Fuel pump at the Robinson Township Sheetz Friday afternoon. He paid $2.45 per gallon for the ethanol fuel, 49 cents less than if he had filled up with regular unleaded gasoline.

Because there are only three stations that offer the fuel in the Pittsburgh area, Pasco said he doesn't use it all the time. But, because he's a meat inspector with the Department of Agriculture and drives a government-owned vehicle, he tries to use the corn-based ethanol whenever possible.

"It saves me about $7 or $8 when I fill up," said Pasco, 50, of Pittsburgh. "I think I get fewer miles per gallon, but I really haven't had a chance to compare."

It has been almost one year since Sheetz introduced its E85 flex fuel program - a corn-based ethanol program that saves consumers nearly 50 cents a gallon over regular unleaded gas - but programs like this one are also taking the blame for driving up the cost of other products made from corn, including processed foods, sodas and candy bars.

"Eventually, it all balances out," Pasco said, adding that he has noticed a slight increase in the cost of other corn products.

As the prices for regular unleaded gas and diesel continue to climb in the United States, government officials and corporations are looking for ways to reduce our dependence on foreign oil. And it looks as if corn will be the wave of the future.

"In early 2006, the federal government mandated that all refiners take out MTBE (a high-polluting octane booster) from their gasoline and replace it with ethanol," said Monica Jones, public relations manager for Sheetz. "This put a strain on the corn industry."

Recent surveys by the Department of Agriculture estimate there are 92.88 million acres of corn in the United States. In 2006, more than 1.8 billion bushels of corn were used to produce nearly 5 billion gallons of ethanol, according to the Corn Growers Association Web site.

The Bureau of Labor Statistics, which tracks prices monthly for the 120 most common grocery items, reported in May that the cost of a bushel of corn was $3.56, up from $1.93 two years ago.

One of the reasons corn has been so low in the past is because it is the most heavily subsidized crop in the United States, accounting for more than $51 billion in subsidies between 1995 and 2005. Farmers received the most money, about $9.4 billion, in 2005.

As corn prices increase and with more corn being used for fuel instead of food, products that used high-fructose corn syrup have increased in price as well. For example, the price for two liters of regular pop rose to $1.27 in May, up from $1.08 in 2006 and $1.13 two years prior. High-fructose corn syrup is second on the list of ingredients for Coca-Cola.

But consumers shouldn't expect to see price drops any time soon, especially as the need for American-produced oil increases. Government officials have proposed to spend nearly $7 billion on renewable energy funding and to assist specialty crop producers in the 2007 Farm Bill.

And, according to Jones, increased research, development and education are the only way ethanol-based fuel programs will make it in the American market.

"Right now, the Flex Fuel program is slow to start, mostly because of consumer education," she said. "It's also expensive to transport, and you need assistance to get it on the market."

THE 85 PERCENT SOLUTION

What is it?

E85 is 85 percent corn-based ethanol and 15 percent gasoline.

Will it sell?

Last year, Sheetz removed its diesel pumps in three Pittsburgh locations to start selling E85. According to Monica Jones, public relations manager for Sheetz, the Flex Fuel program has been slow to start. In its Monroeville location, Sheetz went from selling 6,000 gallons of diesel each week to selling only 1,000 gallons of E85 each week.

Can I use it?

To find out whether your vehicle is compatible with E85, check the Web site http://www.ve85.com/vehicles.

COSTLY CORN

l Corn is the primary feed to produce protein, dairy and egg products across the country. So, when the price of corn increases, the cost of feeding animals and the price of the products they produce also increase.

l A study conducted by the National Corn Growers Association, in conjunction with the consulting firm Advanced Economic Solutions, found that even if corn prices held steady at $3.50 or $4 per bushel, the price for protein, dairy and egg products would increase. For example, the study predicted that pork chops would cost the consumer $3.66 per pound without the increase in corn prices. If the price stayed in the range of $3.50 to $4 per bushel for several years, pork chops would rise to $4.06 per pound by 2009.

l Similarily, milk prices would increase by 53 cents to $3.88 per gallon. And eggs would increase by 25 cents to $1.41 per dozen in 2009.

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